Iran seeks to tame currency's fall

TEHRAN, Iran Police officers moved to arrest unlicensed currency dealers and increase patrols in the center of the capital Monday in order to prevent unofficial trading from disrupting new government-imposed rates of exchange for the national currency, the rial.

Over the past few days Iran's leaders have sought to stabilize the value of their currency after a market panic that saw the rial fall by about 40 percent against foreign currencies.

Now, only those traders licensed by Iran's Central Bank may buy and sell the rial, and at rates that value the rial at 25,500 to the dollar – substantially more than last week, when the rate was 37,500 to a dollar.

The new restriction on unofficial trading also had an unintended downside, luring lines of customers who wanted to sell their rials at the better rate in anticipation that it would eventually weaken again. Several authorized money traders refused to sell foreign currency in large quantities and some hired private security to regulate the flow of customers.

In an additional measure to help ensure that the state's foreign currency would be used only to buy the most important imports, a member of parliament said all luxury imports had been forbidden.

The politician, Gholamreza Mesbahi-Moghaddam, also said parliament has been preparing to discuss the suspension of the second phase of President Mahmoud Ahmadinjead's subsidy reform plan, Iran's English-language state television channel Press TV reported. The lawmaker said recipients would still get their monthly cash payment, which is due in a week.

The monthly payment, of about 450,000 rials a person to nearly 60 million people, is seen by some economists as a contributor to inflation by raising the number of rials in circulation.

Iranian leaders have called the currency crisis a plot by Iran's enemies to subvert the economy, which has faced acute problems that many in Iran and abroad attribute to government mismanagement and the cumulative effects of the sanctions imposed by the West over the disputed Iranian uranium enrichment program.

The sanctions, which have constricted Iran's ability to sell oil and conduct international financial transactions, have sharply increased the price of imports and contributed to the loss of confidence in the rial, which in turn has fueled inflation.

While the Central Bank of Iran has said the annual inflation rate is about 25 percent, by some outside measures it is much higher. Steve H. Hanke, an economics professor at Johns Hopkins University and a senior fellow at the Cato Institute, a research institute in Washington, said he calculated that the rate is now as high as 196 percent.

Members of parliament have garnered enough votes to call Ahmadinejad in for questioning over the currency crisis, the semiofficial Fars News Agency reported, but it is not clear when or if this will happen.

At Tehran's grand bazaar, the scene of an angry demonstration by shopkeepers and passersby last week, all shops that closed because of the protest had reopened by Monday, but there were far fewer shoppers than normal. Many businessmen said they did not know what to charge for their products because of uncertainty over the foreign exchange rates.

“How can we sell enough to pay our debts?” asked Saeed Jalilian, a garment seller, sitting in an empty shop. “I have no customers. I will go broke.”

Still in other shopping centers in the capital people could be seen having lunch and buying products, but most whispers of conversations were about the falling rial.

Experts agreed the government had to do something to stop the fall of the rial but that long-term downward pressure would be difficult to counteract.

“It is clear that these new rates are only sustainable if the Central Bank continues to feed foreign exchange into the market,” said Mousa Ghaninejad, an economy professor at Tehran's Shahid Beheshti University. He said the rial's perceived weakness after inflation and sanctions was not going away.

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